Gold trading reminder: the global central bank's "interest rate cut trend" is surging, and the price of gold seems to be "taking off" again

foreign exchange trading platform- Thursday (June 6) Asian morning trading, spot gold fluctuated narrowly, and the prison rabbit is currently around $2354.86/ounce. Gold prices rose more than 1% on Wednesday to close at $2354.99/ounce, after the release of US private employment data was weaker than expected, strengthening the expectation that the Federal Reserve will cut interest rates later this year, and US Treasury yields fell. In addition, the Bank of Canada cut interest rates by 25 basis points on Wednesday, and the market expects the European Central Bank to cut interest rates on Thursday. It seems that the global central bank will usher in the "interest rate reduction trend". The opportunity cost of holding gold has declined, which is expected to help the price of gold open a new round of upward trend.

Treasury yields fell to their lowest level since April 5 after data showed that private jobs rose less than expected in May.

Bob Haberkorn, senior market strategist at RJO Futures, said the weak labour data added to the argument that the Fed might have to cut rates before the end of the year, boosting gold's appeal. Lower rates reduce the opportunity cost of holding non-yielding gold.

According to CME's FedWatch tool, traders currently see a roughly 71% chance that the Federal Reserve will cut interest rates by September, compared with expectations of less than 50% last week.

Analysts said traders were highly concerned about the non-farm payrolls report, due on Friday, as it would likely affect gold prices.

In terms of physical gold, the World Gold Council (WGC) said that global central bank net gold purchases rose to 33 tons in April and were revised to three tons in March, suggesting that central bank demand for gold remains strong despite high prices.

U.S. service sector activity resumed growth in May, but private jobs rose at the slowest pace since January

A survey released on Wednesday showed that the U.S. service sector returned to growth mode in May after a brief contraction last month, with a measure of business activity showing the biggest improvement in three years, which could make the Federal Reserve more wary of switching to rate cuts.

Meanwhile, an indicator of hiring by private employers showed that businesses added the fewest jobs last month since January, and small businesses reduced jobs for the first time in six months, in new signs that a tight labor market is easing to restore balance.

Reports from the Institute for Supply Management (ISM) and human resources agency ADP jointly paint a mixed picture of the economy: Despite evidence that growth may be weakening, overall, the U.S. economy has withstood the Federal Reserve's sharp interest rate hikes.

While overall economic output grew at its slowest pace in nearly two years in Quarter 1 and the data so far this quarter have been generally weaker than expected, the data alone are unlikely to be enough to prompt Federal Reserve officials to change their core focus in the short term, which is to curb more severe than expected inflation.

The ISM said its non-manufacturing purchasing managers' index rose to 53.8 last month from 49.4 in April. The median forecast of 59 economists was 50.8, just above the 50 level that separates growth from contraction.

The business activity index in the report rose 10.3 points, the largest increase since March 2021, to 61.2, the highest level since November 2022.

Growth in new orders picked up again after slowing in the previous two months, as did a measure of input costs for services. Employment, while improving from a four-month low in April, remained in contraction territory at 47.1.

Thomas Simons, US economist at Jefferies, said the rebound in the services sector from April's contraction was "encouraging because it shows broad improvement across sectors, but the comments of respondents highlighted in the ISM press release were much more muted and cautious".

The stronger-than-expected services data contrasted sharply with Monday's ISM manufacturing report, which showed factory activity contracted for a second month in a row in May.

Indeed, data over the past month broadly missed economists' expectations, providing further evidence that the Fed's rate hikes, which have raised policy rates by 525 basis points since March 2022, are finally putting pressure on an economy that has proved resilient.